Latest quarterly predictions show benchmark annual UK consumer prices index inflation spiking to around 5% in the short term, before falling back to about 1.9% on the key two-year time horizon, based on market interest rate expectations and the scale of the boost to money supply remaining at £200 billion.
However, he said that the “big picture” had not changed much since February and he still expects inflation to fall back in 2012 and 2013.
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The Bank downgraded its expectations for economic growth in 2011 to 1.75%.
A major reason bills are to rise is Chancellor George Osborne’s 12% tax rise on North Sea oil and gas production.
British Gas chief Phil Bentley yesterday said the £10billion tax grab, introduced in the Budget, meant “lower investment, fewer jobs and higher prices”.
Bank downgraded its expectations for Gross Domestic Product in 2011 to around 1.7%, from about 2% in its February report. In 2012, GDP is expected to be around 2.2%, from just under 3%.
The gloomier outlook reflected the impact of surging energy prices, such as crude oil in the wake of political unrest in Libya, and the impact lower wages would have on spending.
Jonathan Loynes, chief European economist at Capital Economics, said: “On the face of it, the report seems to endorse expectations of some policy tightening later this year, continuing in 2012.”
However, he said weaker growth in the face of the fiscal squeeze, as well as possible falls in oil and commodity prices, could mean inflation would fall back further than the Bank expected.
“A hike in August or later is clearly still a danger but we stick to the view that rates won’t rise either this year or next,” added Mr Loynes.
